In the summer of 1992, Ernesto Zedillo,
the presidential candidate of Mexico’s Institutional Revolutionary Party, or
PRI, was trailing in the polls. He seemed to be sleepwalking through his
campaign, which should have been no surprise inasmuch as he had never stood
for public office in his young life. It was only through a quirk of history
that the PRI, which had dominated every national election since 1929, was
forced to nominate Zedillo. Just 40 years of age, he was a party functionary
who had risen to a minor cabinet rank in the government of Carlos de Gortari
Salinas. He had dutifully resigned the office in 1991 in order to organize the
presidential candidacy of Luis Donaldo Colosio, who had been the party’s first
choice to replace Salinas. When in January of 1992, Colosio was assassinated
during a campaign event, the PRI was unable to replace him with any of the
major party leaders in the Salinas Cabinet. The party rules required that
sitting Cabinet members could not succeed the nominee, only PRI members who
had not held office for six months. Given the time constraints, Zedillo was
the only possibility, which is the reason why he had to be
chosen.

The Cabinet official who most likely
would have been chosen, had the rules permitted, was Pedro Aspe, the Finance
Minister, the man most closely identified with the success of the Salinas
administration. Both Aspe and Zedillo had PhDs, in economics from U.S.
universities -- Aspe from MIT and Zedillo from Yale. The backbone of Aspe’s
tenure at Hacienda, as the Finance Ministry is known, was his
determination and success in keeping the peso fixed to the dollar. For the
first time since 1976, Mexico had a unit of account of known and predictable
value. Aspe’s achievement came as a result of his team’s courage in fighting
off the demands of the United States Treasury Secretary, Nick Brady, that in
order to get assistance from Washington, Mexico’s government had to devalue
the peso. When Brady instead backed down, on the Aspe argument that he could
best improve Mexico’s economy with a stable peso, the Mexican stock market
began a long advance that foretold the healthiest economic expansion in more
than a generation. Marked by tax cuts and privatization of state industry,
Mexico’s progress was capped by its successful entry into the North American
Free Trade Association (NAFTA).

If Wall Street could have chosen
Salinas’s successor, it surely would have been Aspe, but the party
establishment chose Colosio, who found the assassin’s bullet. The political
outlook had already been clouded by a rebel uprising of peasants in Chiapas,
the southernmost state and the most impoverished. The economic expansion had
also slowed to a walk as the recession in the United States followed the 1990
tax increases of President Bush, who broke his campaign pledge “read my
lips, no new taxes,” to satisfy the austerity demands of the Republican
party establishment. It was against this background, in July of 1992, that
young Ernesto Zedillo, floundered in the polls, with speculation rampant that
he would be overtaken by the candidate of the conservative National Action
Party (PAN). Whereupon he got a gift from the political gods, as the
charismatic PAN candidate suddenly blurted out in an interview that he
believed the peso was overvalued, and should be devalued. Upon the urging of
Pedro Aspe, Zedillo issued an emphatic statement that if elected, he would
maintain the peso’s value. The Bolsa, Mexico’s stock market, had been
flagging, but it now resumed its upward climb. Reserves began climbing again
at the Bank of Mexico, and Zedillo shot past the PAN candidate in the polls,
foretelling his easy win in September.

It was then that the Forces of Darkness
descended on Mexico, in the form of agents of the International Monetary Fund,
the U.S. Treasury Department, and big-time Wall Street currency speculators
with friends at the IMF and Treasury. They began to lay the groundwork for a
currency devaluation as soon as Zedillo’s election was confirmed. Their agent
inside the Zedillo inner circle was Guillermo Ortiz, a Stanford PhD, who had
served for three years as Mexico’s IMF director in Washington. No sooner had
Zedillo been inaugurated on December 1, 1992 with Pedro Aspe and Carlos
Salinas returning to private life, than the devaluation wheels were set in
motion. The IMF/Treasury forces achieved critical mass in that month, with
Lloyd Bentsen having resigned as Secretary, with his successor Bob Rubin not
to arrive for several weeks. The man in charge during this December hiatus was
Lawrence Summers, Undersecretary for International Affairs. With his help, the
IMF and Federal Reserve international chief, Ted Truman, gave a heave ho to
the new Salinas government, urging devaluation, while their friends on Wall
Street sold the peso short in anticipation of making a killing. That they did.
Zedillo never knew what hit him. The plan was to have a nice little 10%
devaluation. It turned into a 50% devaluation, which wiped out half the peso
savings of the Mexican people, sent foreign investment fleeing, and pitched
the Mexican economy into a recession that it is only recently been crawling
out of. If you would like to read my testimony before the House Banking
Committee on this subject, you can get to it easily in our
archives.

The people of the United States waited
until 1992 to punish George Bush for breaking his read-my-lips campaign
pledge. The people of Mexico had to wait for their congressional elections
yesterday to punish the PRI. Until and unless Zedillo shakes up his cabinet,
getting rid of Ortiz in favor of Aspe or Aspe’s deputy, Francisco Gil Diaz,
who is now at the Bank of Mexico, it will surely lose the presidency in next
year’s elections. You can bet on it. Isn’t democracy wonderful? As long as
politicians keep 51% of their campaign promises and 100% of their read-my-lips
promises, democracy works better than anything else yet devised by mortal
man.